Interest rates of a personal loan play a vital role in the process of loans. Higher interest rates make difficult to repay the loans for the person. But there are plenty of factors that affect the interest rates of the personal loan and some most important of them are as follows.
Repayment History
This is one of the most important factors that can affect the rate of interest of any personal loan. When you repaid your previous loans on time and not missed any EMI then you will get a CIBIL score. This will definitely help you out to get lower interest rates while applying for a new loan.
Your Skills of Negotiation
The skill of negotiation is an art that you should learn before applying for a personal loan. There are a lot of personal loan providers in the market that are providing different type of personal loans with different interest rates. You can also compare all the interest rates and also can negotiate for a lower interest rate with the lender.
Your Income
Your income will decide what amount of loan you can avail. Although, this can vary with different lenders. There are plenty of lenders that set limits of the amount that they can lend a certain amount with a certain income. Salaried employees with higher income can get personal loan easily.
The reputation of Your Employer
This factor is also important if you are going to apply for a personal loan of a higher amount. If you are working in an MNC or reputed company then it will be very easier to get a personal loan with lower interest rates and minimal documentation. The reason behind this is that banks trust more on reputed organizations that you are holding a stable income and career.
Loan Amount & Tenure
This is the most important factor on which the interest rate of your personal loan is decided by the lender. A loan with a higher amount and longer tenure will lend you with higher interest rates and vice versa. So, you should choose the loan amount and tenure wisely and should not increase both unnecessarily.
Debt to Income Ratio
To understand this factor in a better way let’s go with an example – Anuj is a salaried employee in a reputed firm with a salary of 60,000 per month. But when he applied for a personal loan he got rejected why he is holding a good profile though. This could be because he is already consuming a car loan, home loan, 2 credit cards. So, his almost 60% of salary is going to repay these loans. This information can be collected by the lender through the CIBIL report of that person and lender assigns him as risky for the loan. So, you should avoid taking unnecessary loans.